We are retaining our Neutral recommendation on
PPG Industries Inc.
) following its mixed third-quarter 2012 results. The
Pennsylvania-based company topped earnings expectations in the
quarter although currency headwinds dented its sales in the
quarter. It clocked adjusted earnings of $2.24 a share, beating
the Zacks Consensus Estimate by 3 cents. Profit, as reported,
rose 9% year over year on the back of the company's cost-saving
Revenues, however, nudged down 0.1% year over year to $3,845
million, trailing the Zacks Consensus Estimate of $3,904 million.
Sales were impacted by unfavorable currency exchange translation.
The company witnessed strong growth in its North American
automotive OEM coatings business.
PPG Industries, which competes with the DuPont Performance
Coatings segment of
EI DuPont de Nemours & Co.
), has a diversified business, both in terms of products offered
and geographical presence. It has a leading position in several
paints and coatings end markets.
PPG Industries is seeing strength in the North American
automotive OEM market. The company looks to grow its businesses
strategically along with controlling costs. PPG Industries is
also taking steps to grow its business inorganically by making a
number of acquisitions.
Moreover, PPG Industries has been returning cash to its
shareholders in the form of uninterrupted dividend payouts. It is
also pursuing restructuring of its European operation, which is
expected to fetch meaningful cost savings this year and
PPG Industries, in July 2012, announced a definitive
agreement, under which, it will split its commodity chemicals
unit and merge it with Georgia Gulf. The transaction, which is
valued roughly $2.1 billion, is expected to consummate in early
2013. The move is expected to deliver enhanced value to PPG
However, PPG Industries is expected to continue to face
macroeconomic challenges going ahead. The company expects
continued weakness in Europe, inconsistent performance in the
overseas markets and softness across most of its end markets in
the fourth quarter.
Moreover, raw material costs have been a matter of concern.
While prices of key raw materials including titanium dioxide
(TiO2) have stabilized of late, they are still higher on a
We also feel that PPG Industries' significant presence in the
U.S. construction, European architectural and industrial coating
markets exposes it to substantial headwinds. Construction markets
in the U.S. are expected to remain sluggish in the near
Our recommendation on the stock is in sync with a short-term
Zacks #3 Rank (Hold).
DU PONT (EI) DE (DD): Free Stock Analysis
PPG INDS INC (PPG): Free Stock Analysis
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